{"id":1207,"date":"2017-04-27T16:42:52","date_gmt":"2017-04-27T20:42:52","guid":{"rendered":"http:\/\/intelisystemstest.com\/gabi\/?p=1207"},"modified":"2017-09-25T11:31:27","modified_gmt":"2017-09-25T15:31:27","slug":"prospects-for-nuclear-in-the-new-administration-impacts-of-tax-reform","status":"publish","type":"post","link":"https:\/\/thegabi.com\/?p=1207","title":{"rendered":"Prospects for Nuclear in the New Administration: Impacts of Tax Reform"},"content":{"rendered":"<p><strong>Introduction<\/strong><\/p>\n<p>Many nuclear executives are cautiously optimistic that the new pro-business Trump\u00a0Administration will stimulate the struggling nuclear energy sector. The S&amp;P 500, for\u00a0example, has just reached $20 trillion in market capitalization for the first time ever. The\u00a010% increase in the S&amp;P index in just the first three months after Trump won the election\u00a0and represents a $2.7 trillion increase in corporate value for U.S. companies&#8211;and that&#8217;s\u00a0before the Trump Administration has really gotten started. These are optimistic signs, but\u00a0lingering questions for the nuclear sector are: &#8220;How much help will Trump provide to the\u00a0nuclear industry?&#8221; and &#8220;How soon can the industry expect to feel it?&#8221;<\/p>\n<p>This is a complex prediction, especially so soon into the new Trump Administration.\u00a0Nevertheless, business owners must plan according to the information currently available.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignleft size-full wp-image-1208\" src=\"http:\/\/intelisystemstest.com\/gabi\/wp-content\/uploads\/2017\/04\/unnamed.jpg\" alt=\"\" width=\"800\" height=\"519\" srcset=\"https:\/\/thegabi.com\/wp-content\/uploads\/2017\/04\/unnamed.jpg 800w, https:\/\/thegabi.com\/wp-content\/uploads\/2017\/04\/unnamed-300x195.jpg 300w, https:\/\/thegabi.com\/wp-content\/uploads\/2017\/04\/unnamed-768x498.jpg 768w, https:\/\/thegabi.com\/wp-content\/uploads\/2017\/04\/unnamed-200x130.jpg 200w, https:\/\/thegabi.com\/wp-content\/uploads\/2017\/04\/unnamed-400x260.jpg 400w, https:\/\/thegabi.com\/wp-content\/uploads\/2017\/04\/unnamed-600x389.jpg 600w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><\/p>\n<p><em>Vogtle 3 &amp; 4 Reactors courtesy of Georgia Power<\/em><\/p>\n<p><strong>Corporate Tax Reforms<\/strong><\/p>\n<p>One of the highest priority and largest potential impacts on nuclear energy from the Trump\u00a0Administration involve corporate tax reform. In his 100-day action plan, Donald Trump\u00a0pledged to:<\/p>\n<ul>\n<li>Reduce the corporate tax rate from 35 percent to 15 percent;<\/li>\n<li>Allow investments\u00a0capital equipment to be written off immediately (i.e.,depreciated) instead of over time;<\/li>\n<li>Allow overseas profits to be repatriated for just a 10 percent tax; and<\/li>\n<li>Impose a new &#8220;border-adjusted tax system&#8221; (tariff) that would place a 20% tax on imported goods.<\/li>\n<\/ul>\n<p>These reforms are now on the fast-track. In fact, the President has promised to announce a\u00a0&#8220;phenomenal&#8221; tax reform proposal within the next few weeks. Republicans, who currently\u00a0hold the majority of votes in Congress, also have expressed their intent to enact corporate\u00a0tax reforms into law by Fall 2017. However, the 2600+ pages of U.S. tax law are complex,\u00a0tax accounting methods are corporate specific, and the devil is always in the details:<\/p>\n<p><u>Corporate Tax Rate Reduction to 15%<\/u><\/p>\n<p>In general, the proposed reduction in the corporate tax rates to 15% should be a positive\u00a0stimulus for the nuclear sector since it will increase the profit margins of domestic nuclear\u00a0equipment vendors, nuclear service companies, fuel suppliers, and plant owners. The larger\u00a0profit margins will help any struggling nuclear businesses stay afloat as well as allow\u00a0successful businesses to expand their reach.<\/p>\n<p>How much will the rate reduction impact the industry? Of the 34 countries in the OECD,\u00a0the USA ranks highest with its 39.1 percent statutory corporate tax rate as compared to an\u00a0OECD average of 24.1 percent. On its surface, the reduction from a 39.1 percent to just 15\u00a0percent sounds dramatic. In reality, the impact on large domestic nuclear corporations will\u00a0likely not be as large as it appears. Presently, due to sophisticated tax accounting methods,\u00a0very few large corporations actually pay the full 39.1 percent statutory tax rate. Thus, the\u00a0Trump tax stimulus will have its largest beneficial impact on small to medium sized\u00a0nuclear service companies, namely the LLCs, LLPs, and S-Corps whose income can be\u00a0taxed at up to 47.2 percent as a pass-thru entity.<\/p>\n<p>Additionally, the reduction in U.S. corporate tax rates to 15 percent is expected to\u00a0encourage foreign nuclear companies to bring more nuclear jobs and investment capital to\u00a0the U.S.. That may be great for the country overall by enlarging the overall domestic\u00a0nuclear sector. However, it could also yield negative benefits to existing nuclear businesses\u00a0who will see increased competition for their products and services.<\/p>\n<p><u>Deductions<\/u><\/p>\n<p>The overall decrease in corporate statutory tax rates is not the full picture either. There are\u00a0speculations that Trump&#8217;s tax plan will also eliminate many existing tax deductions for\u00a0corporate expenditures. There are even some speculations that Trump&#8217;s tax plan may entail\u00a0a gross receipts tax which allows very few expenses to be deducted. This provision could\u00a0be very unfavorable to nuclear companies with high amounts of gross revenues and high\u00a0expenses. A nuclear company having a low net income or net losses, could find itself\u00a0paying large federal taxes under a gross receipts tax system.<\/p>\n<p>The timing of some tax deductions also will be impacted by the new tax system. The\u00a0Trump Administration has proposed the immediate expensing of capital investments (i.e.,\u00a0accelerated depreciation). For example, a reactor owner will now be able to deduct the\u00a0capital expense of certain purchases immediately instead of having to depreciate or spread\u00a0the tax deduction out over several years. This tax reform could shorten the payback period\u00a0for capital improvements and could make power uprates more affordable. It could breathe\u00a0new &#8220;extended life&#8221; into the aging reactor fleet. Unfortunately, the immediate depreciation\u00a0provision is likely to be capped at $1 million. Consequently, this tax benefit alone is not\u00a0likely to stimulate any multi-billion dollar reactor orders or improve existing reactor\u00a0construction projects which rely upon a special &#8220;bonus&#8221; depreciation approach instead.<\/p>\n<p><u>Border Adjustment Tax<\/u><\/p>\n<p>If enacted, the 20 percent &#8220;border-adjustment tax&#8221; (a.k.a import tariff) could produce very\u00a0significant benefits to the U.S. fuel cycle industry. The stock prices for the largest uranium\u00a0suppliers have gained about 50% on average since the election. Driving this optimism is\u00a0the fact that the American demand for nuclear fuel is the largest in the world. However,\u00a0due to unsupportive past federal policies, the U.S. currently imports about 91% of its\u00a0nuclear fuel from foreign sources. These globalization policies have damaged the viability\u00a0of the American mining industry. Early indications suggest that the Trump Administration\u00a0will more strongly support domestic mining interests. Expect that support to extend\u00a0throughout the front-end of the nuclear fuel cycle.<\/p>\n<p>In terms of job creation, it&#8217;s worth noting that as the domestic commercial nuclear sector\u00a0began to expand in 1957, uranium mining employment actually decreased from about\u00a020,000 jobs then to only about 625 today. We predict that the U.S. uranium producers in\u00a0particular will see a new boost from the Trump Administration. A 20 percent border adjustment\u00a0tax could generate up to $2 billion per year in new fuel cycle revenues. These\u00a0beneficial impacts on nuclear fuel suppliers could be felt immediately since most term fuel\u00a0contracts are indexed to the spot market or include annual price negotiations.<\/p>\n<p>The potential impact of the border-adjustment tax on U.S. nuclear fuel buyers is less clear\u00a0and could go either way. Fortunately, a reactor owner&#8217;s nuclear fuel cost represents only a\u00a0small portion of the total electricity production cost. Also, U.S. nuclear utilities have\u00a0survived under much higher uranium pricing in the past. Consequently, any negative\u00a0impacts from the border adjustment tax on fuel prices are likely to be offset by other gains\u00a0from the Trump tax reforms. Unfortunately, uranium brokers that are holding large\u00a0positions of foreign-origin uranium could be negatively impacted from reduced demand.<\/p>\n<p>Opponents to the Trump tax plan will likely try to block the import tariff because it is\u00a0projected to bring in $1.2 trillion in new revenue and result in an overall deficit-neutral tax\u00a0bill. Why would anyone oppose $1.2 trillion in new revenue? One theory is that if the\u00a0Trump tax reform package remains deficit-neutral, the Republican Senators can easily vote\u00a0Trump&#8217;s entire tax bill into law with a simple majority under a process called\u00a0&#8220;reconciliation.&#8221; However, if the national deficit would increase outside of the 10-year\u00a0budget window due to Trump&#8217;s tax cuts, then the tax reforms cannot be passed using the\u00a0&#8220;reconciliation&#8221; process and the tax reforms would be subject to a 60 vote filibuster hurdle\u00a0instead. Since few Democrats are likely to support Trump&#8217;s tax plan, the passage of the\u00a0&#8220;border-adjusted tax&#8221; provisions are likely to be the key battleground. An interesting\u00a0question going forward: &#8220;Will NEI&#8217;s large utility membership support the tariff?&#8221;<\/p>\n<p><strong>James K. Joosten\u00a0<\/strong>is President of <a href=\"http:\/\/r20.rs6.net\/tn.jsp?f=001nXrJhvu-OQXiSYtj28_3KrYz4lYMaUaQGYASl37vDwW_j01YfeNwAoE5j1KaYH2AIWGkjiOrVBnnGkbzkyUb2VNJeNhZPZT9JT7J59hbXPqgPXFxmQFjwLLefeofBBvMH4nsflrRMqvwcmfjxRwmVDAkqQanPjQNnnbwKyD5Z2U=&amp;c=7ca1919wGDxtvIWnqea3nmSWhCDMEVE2Iy0Ogf97gquXV-7q_mv0rw==&amp;ch=unNnHNuXW1x1v4E_nmP88qxC454eOiSySYY2U9vgvj0prlaLyFY-vg==\" data-saferedirecturl=\"https:\/\/www.google.com\/url?hl=en&amp;q=http:\/\/r20.rs6.net\/tn.jsp?f%3D001nXrJhvu-OQXiSYtj28_3KrYz4lYMaUaQGYASl37vDwW_j01YfeNwAoE5j1KaYH2AIWGkjiOrVBnnGkbzkyUb2VNJeNhZPZT9JT7J59hbXPqgPXFxmQFjwLLefeofBBvMH4nsflrRMqvwcmfjxRwmVDAkqQanPjQNnnbwKyD5Z2U%3D%26c%3D7ca1919wGDxtvIWnqea3nmSWhCDMEVE2Iy0Ogf97gquXV-7q_mv0rw%3D%3D%26ch%3DunNnHNuXW1x1v4E_nmP88qxC454eOiSySYY2U9vgvj0prlaLyFY-vg%3D%3D&amp;source=gmail&amp;ust=1493412006348000&amp;usg=AFQjCNESJ7lV-tOD_Fg-_Edltft8DEiXYQ\">Connect-USA LLC<\/a>, an international consulting firm providing specialized energy analysis and strategic advice to the electric power industry. His 40 years of professional experience include work as a former Senior Energy Analyst with the U.S. Energy Information Administration,\u00a0a former Principal Administrator for Nuclear Development at the OECD Nuclear Energy Agency (NEA), a former Nuclear Safety Expert at the International Atomic Energy Agency (IAEA), and assistant to a former NRC Commissioner. For the first nine years of his career, Mr. Joosten helped commission, operate, and manage two large PWRs for a major US\u00a0utility in Chicago. He has personally examined over 140 nuclear facilities in 24 countries, provided expert witness services on plant decommissioning, and given strategic analyses for major nuclear mergers and acquisitions. Mr. Joosten has conducted high level official reviews of national energy programs and policies in several countries for the IAEA, NEA, IEA, NRC, and DOE. He holds graduate degrees in National Security Studies, Nuclear Engineering, and Engineering Physics.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Introduction Many nuclear executives are cautiously optimistic that the new pro-business Trump\u00a0Administration will stimulate the struggling nuclear energy sector. The S&amp;P 500, for\u00a0example, has just reached $20 trillion in market [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1208,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[60],"tags":[],"class_list":["post-1207","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-expert-brief"],"_links":{"self":[{"href":"https:\/\/thegabi.com\/index.php?rest_route=\/wp\/v2\/posts\/1207","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thegabi.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thegabi.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thegabi.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thegabi.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1207"}],"version-history":[{"count":1,"href":"https:\/\/thegabi.com\/index.php?rest_route=\/wp\/v2\/posts\/1207\/revisions"}],"predecessor-version":[{"id":1209,"href":"https:\/\/thegabi.com\/index.php?rest_route=\/wp\/v2\/posts\/1207\/revisions\/1209"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/thegabi.com\/index.php?rest_route=\/wp\/v2\/media\/1208"}],"wp:attachment":[{"href":"https:\/\/thegabi.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1207"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thegabi.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1207"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thegabi.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1207"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}